In Re Dollar Thrifty Shareholder Litigation

MEMORANDUM OPINION

I. Introduction

The plaintiffs seek a preliminary injunction preventing the consummation of a merger under a merger agreement under which Hertz Global Holdings, Inc. 1 will buy all the shares of its smaller rental car industry rival Dollar Thrifty Automotive Group, Inc. for $82.80 per share in cash (including a $200 million special dividend that will only be paid in the event of the merger) and 0.6366 shares of Hertz stock for each share of Dollar Thrifty stock (the “Merger,” and the “Merger Agreement” respectively). The Merger consideration was worth $41 per share as of signing. The plaintiffs criticize the Dollar Thrifty board (the “Board”) for failing to conduct a pre-signing auction and for signing up a Merger Agreement that yielded only a modest premium over the closing price of Dollar Thrifty’s stock on the last trading day before the Merger Agreement was signed. Even worse, the plaintiffs say, the Merger Agreement included a termination fee and matching rights that the plaintiffs believe have a quelling effect on any topping bidder. The plaintiffs say this even though another large industry player, Avis Budget Group, Inc., has come forward with a bid that nominally tops the Hertz bid, by offering a combination of cash and stock equal to $46.50 per share. In formulating that bid, Avis was able to receive confidential, non-public information from Dollar Thrifty and has had many months to put together its financing and other terms. At this point, the Dollar Thrifty Board has already determined that Avis’s bid would be superior to Hertz’s if it could be assured that Avis would actually close. But Avis, unlike Hertz, has refused to promise to pay any reverse termination fee in the event that antitrust approval for an Avis-Dollar Thrifty merger cannot be attained and has also not matched the level of divestitures Hertz is willing to make to achieve antitrust approval.

A vote is scheduled on September 16, 2010 for the Dollar Thrifty stockholders to decide whether to accept the Hertz deal. At this point, the only thing apparently standing between Avis and a deal with Dollar Thrifty is its willingness to address Dollar Thrifty’s concern over closing certainty by offering to pay a reverse termination fee that compensates Dollar Thrifty for the risk of non-consummation. The deal protections in the Merger Agreement have not prevented Avis from presenting a competing bid, and the termination fee represents a very small percentage cost to Avis of its topping bid. Indeed, the termination fee does not constitute a material impediment for any topping bidder who wishes to make a materially superior offer to Hertz’s, it at best deters fractional topping. In that sense, the deal protections actually encourage an interloper to dig deep and to put on the table a clearly better offer rather than to emerge with pennies more.

*576 On the record before me, I must deny the plaintiffs’ motion. Despite the plaintiffs’ skillful advocacy, the record after factual discovery does not support their claim that the Dollar Thrifty Board likely breached its fiduciary duty to take reasonable steps to maximize the value Dollar Thrifty stockholders would receive. Rather, the record reveals that the Dollar Thrifty Board, and its CEO Scott Thompson, has managed Dollar Thrifty successfully through a financial crisis that saw the company on the brink of insolvency and improved its performance to the point where the company was profitable and receiving plaudits from the stock market. The Board did so by economizing on costs and engaging in profitable arbitrage in handling the company’s rental car fleet. Throughout the last several years, while managing the company, the Board has been open to selling the company if a deal favorable to the stockholders could be achieved. To that end, the Board engaged in lengthy discussions with both Hertz and Avis in the last several years. Each of Hertz and Avis ultimately walked away, in circumstances when they could have bought the company at a bargain price.

By the end of 2009 when Hertz again approached Dollar Thrifty, Dollar Thrifty’s performance had stabilized and its stock price had risen sharply, from under $1 per share in March 2009, up to $26.97 on December 22, 2009. Despite having misgivings about again discussing a sale with an industry rival that had failed to come through before, the Board took a deep breath, exhaled, and determined that it had to listen to Hertz. After achieving assurances from Hertz that it would offer a price in the mid-thirties, a substantial premium to the prevailing market price and as important to the Board, a good price in terms of the company’s fundamental earnings potential, the Board decided to engage in negotiations with Hertz, while simultaneously focusing on managing the business. The Board expressly considered whether to reach out to Avis and other possible buyers. But the Board concluded that Avis was not well positioned financially to make a bid given its own leverage position and the state of the credit markets and due to the somewhat greater antitrust risk the Board’s advisors believed a deal with Avis presented. The Board also took into account the strong possibility that Hertz would go away if the company went into auction mode, a possibility buttressed by Hertz’s demonstrated willingness to take a pass on Dollar Thrifty at lower price levels and its demand for exclusivity. Equally important, the Board was worried that a failed public auction could damage the company, including by distracting and creating anxiety among company employees, who had been through difficulty in recent years involving downsizing and increased expectations for personal productivity.

The Board therefore decided to engage solely with Hertz but reserving for itself the opportunity in any merger agreement to consider a post-signing topping bid. After months of difficult negotiations during which Dollar Thrifty shut down talks in order to extract better terms, Hertz and Dollar Thrifty had narrowed their differences. Near the end of this process, Avis’s CEO made an awkward and oblique overture to Thompson, asking him to go to dinner through a banker. The Avis CEO never said what he wanted, and gave off signals that made it possible that he wanted to talk about employing Thompson at Avis. This feeble inquiry came at a very sensitive time in the final stages of the Hertz negotiations.

Using Hertz’s desire to announce a deal before its own tepid earnings release and Dollar Thrifty’s expected strong earnings release as leverage, Dollar Thrifty got *577 Hertz to improve its offer to $41 per share, comprised mostly of cash but also of Hertz stock. Critically, Dollar Thrifty also got Hertz to agree to divest assets generating up to $335 million in revenue if necessary to achieve antitrust approval, and to pay a reverse termination fee of $44.6 million if antitrust approval was not achieved. In exchange, Dollar Thrifty agreed that it would pay an identical termination fee 2 but only if it signed up a higher valued deal within a year.

By the time these terms were reached, Dollar Thrifty’s stock price had continued to increase, and the $41 per share constituted a relatively modest 5.5% premium to market. But it represented a price near the top range of the discounted cash flow valuations presented to the Board. Moreover, the Dollar Thrifty Board, while pleased that the company’s position had improved, realized that the company did not have a strong long-term growth story and thought that it would be useful to lock in a price when the company was being fully valued. Most importantly, the Board also considered that signing up a deal with Hertz would provide Avis with a strong incentive to either put up or shut up, because the Dollar Thrifty stockholders would likely approve the sale to Hertz if Avis did not act and Avis risked, by not acting, forever losing the chance to buy one of the last remaining smaller players in the rental car space.

In concluding that this approach to value maximization was reasonable, I give credit to the record that shows that the entire Dollar Thrifty Board had no conflict of interest that gave them a motive to do other than the right thing. The record reveals no preference on the part of the Board for Hertz over Avis or any other acquirer. The CEO, Thompson, has a huge incentive not to sell at a suboptimal price because he has a large chunk of actual common stock and has no apparent desire to work for an industry competitor. When directors who are well motivated, have displayed no entrenchment motivation over several years, and who diligently involve themselves in the deal process choose a course of action, this court should be reluctant to second-guess their actions as unreasonable.

Based on the circumstances the Board confronted, I cannot find that its course of action was unreasonable. To wish to sell in sight of the top of the market and to not be driven solely by the market premium is a reasonable determination to make when a company’s stock has run up sharply during the period of negotiations and when the company’s internal estimates of its own earnings potential suggest the deal price is highly favorable. To do so in a manner that provides, as the Board has done, a fair opportunity for a topping bid and that actually creates a powerful incentive for another industry rival to finally act with definitiveness rather than coyness, cannot also be deemed unreasonable. In fact, on this record, it appears that the Board’s determination to sign up a deal with Hertz is what actually kicked Avis into mature action. Avis did not even own a share of Dollar Thrifty before the Hertz Merger Agreement was signed and, consistent with the Board’s concerns about Avis’s financial capacity and ability to secure regulatory approval, took three months to secure financing to make a bid, and has yet to offer a reverse termination fee to deal with antitrust risk.

By its actions, the Board gave the stockholders the chance to take a floor price that was very attractive in light of the Board’s estimate of the company’s fundamental value, left them uncoerced to turn *578 down the deal if they preferred to remain independent because the termination fee is only payable if a higher value deal is accepted, and left the door open to a higher bidder. Although I have no doubt that other reasonable approaches could have been taken, the approach the Dollar Thrifty Board took here emerges, on this record, as a reasonable one and that is what is necessary to satisfy its duties.

At this stage, this court has no basis to intervene. The plaintiffs do not seriously challenge the Dollar Thrifty Board’s refusal to accept a topping bid from Avis that does not include a reverse termination fee or some other adequate closing assurance. Value is not value if it is not ultimately paid. Avis is free to make an economic move and to have its bid accepted without unreasonable impediment by the Hertz Merger Agreement. The Dollar Thrifty stockholders are free to accept or reject the Hertz deal on their own. In other words, the free play of economic forces and the reward-risk calculus of the Dollar Thrifty stockholders should determine the outcome without the injection of the uncertainty of an injunction against board action that seems to have had the effect of ginning up competition for Dollar Thrifty between two highly-motivated industry rivals.

II. Factual Background

As is required in considering a motion for a preliminary injunction, these are the facts that I conclude are likely to be found, based on the current record, after a trial in this matter. 3

A. The Dollar Thrifty Board

The Board consists of six members, five of whom are independent. The only nonindependent director is Scott Thompson, the CEO. Three of the other directors, John C. Pope, Edward C. Lumley and Thomas P. Capo (who has served as Chairman since 2003) have been on the Board since 1997, the year the company went public. The other two members, Maryann N. Keller and Richard W. Neu joined the Board in 2000 and 2004 respectively. All of the directors are experienced in the automotive industry, 4 and none of them other than Thompson 5 will receive any compensation other than as stockholders as a result of the Merger. 6

B. Dollar Thrifty And The Other Major Players In The Rental Car Industry

Since 1997, Dollar Thrifty has been a publicly traded company. It is currently the fourth-largest rental car company in the United States. The U.S. rental car market has relatively few players. In 2009, four companies — Enterprise Holdings, Inc., Avis, Hertz and Dollar Thrifty— accounted for over 90% of the industry’s total revenue. 7 Dollar Thrifty had 7.1% of the total market and 11.8% of the on- *579 airport market. 8 Both Dollar Thrifty and Avis’s Budget brand focus on value-conscious, leisure travelers. Hertz, on the other hand, focuses mainly on weekday business travelers and only recently entered the leisure market with its purchase of Advantage Rent A Car. 9

C. In 2007 And 2008 Dollar Thrifty Has Numerous Discussions With Both Hertz And Avis About A Merger

The 2007 acquisition of Vanguard Car Rental 10 by Enterprise ignited discussions between the other major players in the industry about strategic combinations. 11 In April 2007, Dollar Thrifty and Hertz began talks regarding a potential business combination. The two companies entered into a confidentiality agreement and conducted initial due diligence. Members of the two companies’ senior management met to consider a possible transaction but shortly after the meeting the companies terminated their discussions. 12

In October 2007, Dollar Thrifty received a non-binding indication of interest from Avis about a possible combination at a price of $44 per share with a 58% cash, 42% stock consideration mix. In December 2007, Avis lowered its offer to $85.50 at a time when Dollar Thrifty’s stock was trading at $24.12 per share. 13 In what would become a common refrain, Dollar Thrifty expressed a willingness to consider the offer but warned Avis that deal certainty was of “paramount importance.” 14 Avis would not agree to Dollar Thrifty’s demands for a reverse termination fee payable in the event that antitrust approval was not received and in January 2008, the two companies mutually agreed to terminate discussions. 15

Three months later, in March 2008, Gary Paxton, the then President and CEO of Dollar Thrifty, contacted Mark Frissora, the CEO of Hertz, and Ronald Nelson, the CEO of Avis, to see if either would be interested in re-engaging in discussions about a merger. 16 As a result of this overture, both Hertz and Avis indicated that they would be interested in such a transaction.

In April and May 2008, Dollar Thrifty again signed confidentiality agreements and began conducting due diligence with both Avis and Hertz. As -a result, Dollar Thrifty received non-binding indications of interest from both companies in late May. Dollar Thrifty continued negotiations with both Avis and Hertz and in early June went so far as to provide both companies with a draft Agreement and Plan of Merger prepared by its outside counsel, Cleary Gottlieb Steen & Hamilton, LLP. Shortly thereafter, however, Avis advised Dollar Thrifty that it was no longer interested in pursuing a merger. 17 When Avis walked away, Dollar Thrifty’s shares were trading in the range of $10-15. In August 2008, Hertz also informed Dollar Thrifty that it was not interested in pursuing a transaction at that time.

*580 D. Dollar Thrifty’s Turnaround

In May 2008, Thompson had joined Dollar Thrifty as CFO. At that time, Dollar Thrifty’s share price had tumbled to $13 from almost $50 less than a year earlier. Thompson served as CFO for about five months before being promoted to CEO in October 2008. By then, Dollar Thrifty was in dire straits. Its stock price had fallen below $1 per share and it was on the brink of defaulting on about $1.5 billion of debt.

Under Thompson’s leadership, Dollar Thrifty has performed a skillful economic u-turn. Thompson attributes this success to numerous factors, but three stand out.

First, Thompson renegotiated the purchase agreement that Dollar Thrifty had with Chrysler. Before going public in 1997, Dollar Thrifty was owned by Chrysler and a vestige of that relationship was a supply agreement that required Dollar Thrifty to purchase over 100,000 cars per year from Chrysler, and ensured that 75% of all the cars Dollar Thrifty purchased every year came from Chrysler. 18 The 75% requirement hampered Dollar Thrifty’s efforts to negotiate with other car manufacturers. 19 Thompson took advantage of Chrysler’s own economic difficulties in early 2009 to eliminate the 75% requirement and dramatically lower the number of cars that Dollar Thrifty had to purchase from Chrysler.

Second, Thompson changed the way that Dollar Thrifty purchased cars from manufacturers so that Dollar Thrifty had more investment exposure to the used-car market. 20 This meant that instead of being guaranteed a residual resale price on the cars it purchased, Dollar Thrifty would be exposed to the downside risk of the used-car market, but also would be in a position to take advantage if the market improved. Dollar Thrifty’s fleet of cars went from being about 60% “risky” to about 95%. 21 This move proved profitable. In late 2009, used cars began a period of material price growth. 22 The strong used-car market for 2009 and 2010 caused Dollar Thrifty’s cost per car in its fleet to decrease from $336 in 2009 23 to $245-255 in 2010. 24 Importantly, Dollar Thrifty expects the cost per car to rebound back to $300-310 in 2011. 25 Dollar Thrifty’s advisors estimate that the $194 million 2010 corporate EBITDA projection from July 2010 includes $54 million attributable to unsustainable reductions in fleet cost associated with the booming used-car market. 26

Third, Thompson embarked on a series of cost-cutting and productivity enhancing endeavors as soon as he was appointed CEO. Thompson slashed Dollar Thrifty’s workforce across all levels. The company laid off 40% of its executive vice-presidents, 30% of its officers, and 10-15% of its workforce. 27 Dollar Thrifty also eliminated all executive perks. Knowing that these cuts would rattle the remaining workforce and knowing that the prior merger talks had caused employee unrest, Thompson tried to encourage the remaining workers to concentrate on their jobs. Thus, he made the deep cuts rapidly and in one fell swoop, reasoning that “if every *581 body will go once and go deep, I’ll only go this one time.” 28 To encourage the remaining employees to feel secure and thus better concentrate on the task at hand, Thompson first announced that the company was not for sale. Then, to partly make up for the anxiety and increased demands on the remaining workforce, he switched the company to a casual dress code. More tangibly, Thompson got the Board to set aside a large piece of the company’s equity — approximately 10% — to be used for stock options that the company could give to the officers and executives to ensure that he got “their hearts, their minds and all their efforts.” 29

E. With Thompson As CEO, Dollar Thrifty And Hertz Again Engage In Fruitless Talks

Shortly after Thompson became CEO in October 2008, Frissora contacted him to discuss the possibility of reviving talks between Hertz and Dollar Thrifty. The Board instructed management to recommence talks and over the next four months the two companies haggled over the terms of a potential merger. During this period, Dollar Thrifty’s stock was anemic and Hertz made offers of $3.50 per share in January and again in February when Dollar Thrifty’s shares were trading at $0.88. 30 Thompson became convinced that “we can’t let anyone buy [Dollar Thrifty] on the cheap or risk derailing the teams [sic] attitude,” and communicated this to the Board. 31 After seeing the team at Dollar Thrifty work, Thompson told the Board that “I am all for merging but only merge on our terms. We have a valuable company in a consolidating industry.” 32 Heeding Thompson’s advice, on March 23, the Dollar Thrifty Board decided that given the condition of the financial markets it was in the best interest of the company to focus on everyday operations and not on a merger that would be difficult to accomplish. 33

F. Dollar Thrifty And Hertz Resume Negotiations And Begin Discussions Leading To The Merger

On December 4, 2009, Frissora again reached out to Thompson about a possible merger between Dollar Thrifty and Hertz. The Board was apprehensive about reopening negotiations with Hertz in light of the failed talks in the past, 34 but on December 7, Thompson communicated to Frissora that the Board was open to new merger talks, and on December 10, 2009, the two companies entered into a new confidentiality agreement. 35

1. A Not-So-Brief Pause To Dilate On The Board’s Choice Of Strategic Advisors

Although ultimately not an issue I conclude is meritorious, the plaintiffs make extended arguments about the propriety of Dollar Thrifty’s decision to use not just JP Morgan, its pre-existing financial advisor, but also Goldman Sachs to advise it during the merger negotiations with Hertz.

*582 The plaintiffs say that the retention of Goldman Sachs tainted the sales process. The plaintiffs attempt to paint a picture in which Goldman Sachs was hired by Thompson to repay a personal debt, at which point Goldman Sachs came up with the idea that Dollar Thrifty and Hertz should merge, and then rammed the transaction through the Dollar Thrifty Board on behalf of the private equity firm Clayton Dubilier and Rice (“CD & R”) that owns a large part of Hertz — a private equity firm that the plaintiffs contend is more important to Goldman Sachs as a client than Dollar Thrifty. This picture, however, does not emerge with color from the record.

The plaintiffs’ argument rests partially on the premise that Goldman Sachs was conflicted because CD & R was “chock full” of former Goldman Sachs employees. 36 As evidence of the graveness of Goldman Sachs’s conflict, the plaintiffs point to an internal JP Morgan email chain between David Fox, a vice-chairman at JP Morgan and Mark Pinsky, JP Morgan’s lead banker for Dollar Thrifty, in which Fox suggests that Pinsky tell Thompson “that Goldman is in bed with CD & R and you can bet they have a Hertz conflict.” 37

Several vital things about this email chain are glossed over, if not wholly ignored, in the plaintiffs’ briefing. First, it should be noted that the emails do not concern the Dollar Thrifty/Hertz Merger at all, but rather relate to an equity offering that Dollar Thrifty was contemplating in September 2009. Next, the plaintiffs’ contention later in their brief that JP Morgan also had a business relationship with CD & R (along with JP Morgan’s own recognition of this in the emails), 38 is evidence of one of the facts of business life— that most of the top, if not all, banks have relationships with the major private equity firms, like CD & R. 39

The email chain is best viewed as one bank trying to make sure its competitor doesn’t steal its client. JP Morgan viewed Goldman Sachs as an interloper trying to angle into JP Morgan’s deal.

The plaintiffs also suggest that Thompson hired Goldman Sachs out of an impermissible sense of personal obligation and failed to inform the Board about his true motivations and relationship with Goldman Sachs or Goldman Sachs’s relationship with Hertz and CD & R. This argument also falls flat. The Board was well aware that Thompson had engaged Goldman Sachs on behalf of Dollar Thrifty months before Hertz and Dollar Thrifty even began their latest round of merger talks. This, again, is related to the fact that the emails the plaintiffs rely on to prove Goldman Sachs’s conflict relate to an equity offering that Goldman Sachs assisted Dollar Thrifty with in September 2009. In conjunction with that deal, the minutes of the Board meetings on August 26, 2009 40 and September 23, 2009 41 both reflect that the Board knew Goldman Sachs was involved in helping Dollar Thrifty manage *583 ment assess the transaction. 42 Further, in conjunction with the Board’s decision to retain Goldman Sachs for the equity offering, Thompson advised the Board about Goldman Sachs’s relationship with Hertz, and that Goldman Sachs performed and cleared internal conflict checks before both the equity offering and the Merger engagement. 43

The plaintiffs again rely on the testimony of a JP Morgan employee to establish that Thompson’s allegiance to Goldman Sachs was somehow impermissibly personal. 44 Although William Jacob of Goldman Sachs did testify that he perceived Thompson to be “loyal to Goldman Sachs,” that is because Goldman Sachs worked on the Group 1 Automotive, Inc. IPO when Thompson was CFO of that company and Thompson was impressed with how they had handled the deal. 45 The banker at Goldman Sachs who Thompson had personally worked with on the Group 1 deal, however, was no longer a Goldman Sachs employee. 46 Thompson was put in touch with Jacob by the analyst who covered Group 1, and Jacob and Thompson had never met before Thompson contacted him about working on the September equity deal. 47

The plaintiffs next point to an email chain between Thompson and Jacob about fees in which Thompsons says “I need to get you [Goldman Sachs] even with [JP Morgan] without drama.” 48 Again, the plaintiffs’ characterization of the email chain is overstated and the quoted language is better understood in the proper context. Thompson begins the email chain by telling Jacob that they needed to clarify the fee arrangement because Thompson’s notes “are not perfectly clear.” 49 Jacob responds by saying that the plan was originally to have Goldman Sachs’s fee worked out to be the same as JP Morgan’s but that it became complicated to write the agreement that way. Goldman Sachs and Dollar Thrifty, therefore, agreed that Goldman Sachs would be paid $5 million, as opposed to JP Morgan’s $7 million, but that Dollar Thrifty could pay Goldman Sachs an additional $2 million in its sole discretion if Dollar Thrifty felt it was merited. 50 Thompson’s unsolicited response that he wanted to get Goldman Sachs the $2 million might not have been proper, in the sense that he should have wished to pay each advisor only the minimum amount necessary to get them to perform well, but it is understandable if he valued the work Goldman Sachs was doing and felt that they deserved equal treatment with JP Morgan.

*584 2. Hertz Expresses Interest At $30 Per Share

On December 22, 2009, Hertz made a formal expression of interest to acquire Dollar Thrifty at a price of $30 per share at a mix of 50% cash and 50% stock. 51 Eight days later, on December 30, 2009, the Board met to consider Hertz’s offer. 52 At this meeting, Thompson advised the Board that one of the main concerns with a transaction with Hertz was “certainty of closing due to many factors, including regulatory review.” 53 Antitrust counsel from Cleary Gottlieb advised the Board on the regulatory issues and the Board asked questions of the lawyer. 54 The Board was then advised by a different Cleary Gottlieb lawyer about its fiduciary obligations in connection with the offer, including in particular its Revlon duties. 55

After this portion of the meeting, the bankers from JP Morgan and Goldman Sachs joined in to present materials to the Board about the economics of Hertz’s offer. JP Morgan and Goldman Sachs offered a preliminary DCF analysis of the company which produced a valuation in the $28.80-$33.60 range. 56 The bankers also noted that the $30 offer price represented an 11.4% premium over the December 28, 2009 closing price of $26.93, was a 35.5% premium to Dollar Thrifty’s 30-day volume weighted average price (“VWAP”) and a 40.4% premium to Dollar Thrifty’s 90-day VWAP.

Importantly, the Board considered at the meeting whether to contact Avis and decided against it. 57 The Board talked about the fact that Hertz had a less substantial leisure market presence than Avis so a transaction with Hertz would likely present less antitrust risk. 58 The Board also discussed the fact that Avis would have trouble financing the deal because of its bank covenants and the state of the financial markets 59 and “at the outset, [the Board] was very adamant that [it] wanted certainty of transaction close as one of the critical criteria....” 60

The next day, Dollar Thrifty responded to Hertz, rejecting its offer but leaving open the possibility for further negotiations. Dollar Thrifty expressed a desire for a price “at least in the mid-thirties,” 61 expressed its preference for an all-cash offer, 62 and conveyed that deal certainty was an important issue to the Board. 63 In fact, in his December 31 letter to Frissora, Thompson stated that Dollar Thrifty “will require as a condition to proceeding with further discussions, confirmation that Hertz will bear the burden of any and all conditions imposed by any regulatory agency....” 64

*585 3. Hertz Raises Its Offer To $35 And Dollar Thrifty Accedes To Hertz’s Demand For An Exclusivity Agreement

On January 7, 2010 Dollar Thrifty’s and Hertz’s financial advisors met to discuss the financial aspects of a possible deal. 65 On January 18, senior management from the two companies met, 66 and on January 25, Hertz submitted a revised offer to Dollar Thrifty. 67

The January 25 offer increased the price to $85 a share and changed the consideration mix to 60% cash and 40% stock. 68 Hertz responded to Dollar Thrifty’s antitrust concerns by offering that it was “prepared to use [its] reasonable best efforts to obtain regulatory clearance ... including, if necessary, divesting assets....” 69

On January 27, the Dollar Thrifty Board met to consider Hertz’s latest offer. The bankers again presented materials relating to the economics of the transaction. 70 The $35 price represented a premium of 44.5% to the January 25 stock price of $24.22, a 30.6% premium to the 30-day VWAP and a 62.3% premium to the 90-day VWAP. 71 The bankers also indicated that Hertz had signaled a willingness to divest between $100-150 million in assets to achieve regulatory approval. 72 The Board again engaged in discussions about whether to reach out to Avis, and Avis’s comparative ability to Hertz’s to actually close a deal. 73 The Board, for instance, discussed that because of Avis’s financial condition, the consideration in an offer from Avis would need to be largely in Avis stock which would trigger provisions of the New York Stock Exchange Rules and require an Avis shareholder vote and that there was somewhat greater antitrust risk in an Avis deal. 74

After these deliberations, the Board chose not to accept Hertz’s offer but authorized Thompson to execute a 45-day exclusivity agreement with Hertz and requested that management update the Board at least every two weeks on the progress of talks. 75 On February 3, Dollar Thrifty and Hertz entered into an exclusivity agreement that expired at the end of March 17, 2010. 76 On February 10 and 11, the senior management of Dollar Thrifty and Hertz met in person in Chicago to hash out a deal. On February 12, Thompson updated the Board via email that Hertz appeared serious about getting a deal done but that there was “no news on the anti trust [sic] front.” 77

Also on February 12, Cleary Gottlieb delivered a draft merger agreement to De- *586 bevoise & Plimpton LLP, Hertz’s legal counsel. On the 24th, Debevoise sent Dollar Thrifty its revisions to the agreement. 78 The revisions were not well received. Thompson felt that the proposed revisions were not only inconsistent with his discussion with Frissora, but “inconsistent with what I believed would be a public company transaction, kind of way off the mark.” 79 The draft agreement proffered by Hertz now contained numerous additional closing conditions, but did not contain any reverse termination fee, and contained a 4.5% termination fee payable by Dollar Thrifty if Dollar Thrifty signed up a different deal instead within a year. 80 On March 5, the Board met to discuss the proposed agreement. At that meeting the advisors outlined the problems with the agreement and the Board decided to close the data room and instructed Thompson to reach out to Hertz to “re-emphasize the minimum risk allocation requirements of [Dollar Thrifty].” 81

On March 12, Hertz submitted another draft merger agreement aimed at addressing some of Dollar Thrifty’s concerns. 82 In apparent recognition of the importance of the antitrust issue to Dollar Thrifty, Hertz included along with the proposed agreement, a memorandum providing more detail on what it perceived would be its obligations under the agreement with regards to antitrust approval. 83 The next day, Thompson emailed the Board relaying that a new draft merger agreement had been received and that the “way over the top” parts had been taken out. 84 Thompson warned that the agreement was still not acceptable but that in management’s opinion it was “worth discussing.” 85 Additionally, Thompson told the Board that Dollar Thrifty’s data room would remain closed until after the March 24 board meeting.

On March 17, Cleary Gottlieb sent a revised merger agreement to Hertz that included a termination fee binding Dollar Thrifty of 3% 86 and a reverse termination fee binding Hertz of 5%. 87 Three days later, on March 20, Debevoise responded for Hertz with yet another draft merger agreement that removed more of the closing requirements Dollar Thrifty had found objectionable. 88 This time, foregoing any attempts to pencil-in termination fee numbers, Debevoise instead marked the termination fee and reverse termination fee percentages as “under discussion.” 89 The next day, Thompson emailed the Board to report that the deal was “moving forward,” but that price was going to be a “[b]ig issue” because Dollar Thrifty was “hitting the ball and [Hertz is] going to report another shortfall.” 90

4. The March 2h And 25 Dollar Thrifty Board Meeting

With the Hertz exclusivity agreement expired, and a viable offer to consider, the *587 Dollar Thrifty Board met on March 24 and 25 in Dallas, Texas to discuss how best to move forward. The second day of the meeting was devoted to analyzing the status of the deal with Hertz. Cleary Gott-lieb again explained the Board’s fiduciary duties in connection with a possible sale of the company. 91 Cleary Gottlieb specifically addressed the “manner in which [the risk of] non-consummation of a transaction should be considered as part of any Revlon analysis.” 92 JP Morgan and Goldman Sachs were then called upon to review the current state of the economics of the transaction. The bankers presented updated DCF calculations that valued Dollar Thrifty at between $29.70 and $88.40 per share. By the time of the meeting, the $35 price, which had been offered over two months earlier, represented a 5.9% premium to Dollar Thrifty’s March 19 closing price of $33.04, a 13.7% premium to the 30-day VWAP, and a 23.9% premium to the 90-day VWAP.

The Board also again considered the possibility of making an overture to Avis now that Dollar Thrifty was no longer constrained by the exclusivity agreement. 93 Thompson was concerned that trying to create an auction instead of dealing with Hertz alone posed real risks that no deal would get done with either potential buyer. 94 JP Morgan and Goldman Sachs both expressed serious doubt that Avis could secure the necessary financing for a cash bid given the state of the credit markets and Avis’s current leverage profile, and Cleary Gottlieb chimed in to discuss the need for Avis to obtain a shareholder vote if it was to use more equity-based consideration. 95 This sparked a conversation about what sort of deal protections Dollar Thrifty would need to work into any deal with Avis to guard against the uncertainty created by these shortcomings. 96

The Board, however, was worried that a merger agreement with Hertz could chill a topping bid from Avis. In fact, Pope asked Cleary Gottlieb to address just this question and discuss what effect an agreement with Hertz would have on Avis’s ability to make a bid for Dollar Thrifty. 97 Other members of the Board were also concerned about leaving the door open for Avis, Capo felt the best strategy was to “get a fair deal with Hertz” but “at all times leavfe] ourselves, within the contract, the ability to evaluate any superior offer that may come in.” 98

Finally, at the meeting, the Board’s independent directors met alone for almost an hour. 99 During this meeting, the independent directors discussed the need to be *588 on the lookout for any risk that management might be “starting to favor one thing versus another, or management falling in love with the transaction or one of those things.” 100

Ultimately, the Board decided that negotiations with Hertz should continue, that no outreach to Avis should be made, and authorized Thompson to reopen the data room and to contact Hertz so that the companies could continue due diligence and resume negotiations. The next day, Thompson reached out to Frissora, who was pleased and said he would get his people moving forward. 101 Thompson again made clear that deal certainty remained important to Dollar Thrifty. 102

5. Negotiations Between Hertz And Dollar Thrifty Break Down After Dollar Thrifty Pushes For $45

On April 8, 2010, Dollar Thrifty proposed that Hertz pay a price of $44.96 per share with 50% cash, 50% stock consideration mix. 103 The price represented a 25% premium to Dollar Thrifty’s closing price on that day of $35.97. Hertz replied to the offer by shutting down its data room the next day and stopping due diligence. 104 At the same time, Frissora attempted to set up a phone call with Thompson, but Thompson explained via email that “regrettably” his calendar would not allow him to talk until the week of April 26. 105 Frissora responded that the $45 proposal was so far off the mark that Hertz was shutting down the process until Frissora and Thompson could come up with “some sort of a gap closure plan to see if this transaction still has legs.” 106

On April 12, Frissora sent Thompson a letter communicating the results of a Hertz board meeting held that morning. 107 Frissora stated that Hertz was still interested in acquiring Dollar Thrifty, but given what Hertz perceived as the material difference in valuation expectations between the two companies, that the Hertz board had decided to “step back from the transaction.” 108

Thompson reacted to the letter by emailing Pinsky, Jacob and Capo (among others) and suggesting that the proper response was “no response hard dark and just drive on. Advisors and lawyers stand down. Have a quickie board meeting this week for a formal close of the loop.” 109 Thompson next contacted Vicki Vaniman, Dollar Thrifty’s general counsel, to have her set up a Dollar Thrifty board meeting the topic of which would be “termination of special project.” 110 Critically, Thompson’s initial email to the bankers and Capo ended with the statement: “[w]e will close a deal with next [Hertz] CEO or [Avis].” 111 In other words, two weeks before the signing of the Merger Agreement that the plaintiffs claim was rigged from the get-go, the record suggests that the Hertz transaction was dead, and that Dollar Thrifty’s CEO was happy to continue as an indepen *589 dent company and negotiate somewhere down the road with Hertz or Avis.

A Dollar Thrifty board meeting was scheduled for April 16. That Board meeting, however, never happened. Instead, Thompson and Frissora met on April 16 at the suggestion of JP Morgan to see if something could be worked out. 112 At the April 16 meeting, Dollar Thrifty expressed willingness to do a deal with a price above $40 per share. Hertz countered with an offer of $88 per sh